“In its post meeting statement, rather than framing its near-term policy path in terms of how long to maintain the current target range, the Committee decided to indicate that, in determining whether it would be appropriate to raise the target range at its next meeting, it would assess both realized and expected progress toward its objectives of maximum employment and 2 percent inflation.
Members emphasized that this change was intended to convey the sense that, while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting, provided that unanticipated shocks do not adversely affect the economic outlook and that incoming data support the expectation that labor market conditions will continue to improve and that inflation will return to the Committee’s 2 percent objective over the medium term.” -FOMC Minutes
After taking the admittedly unprecedented steps, the Federal Reserve has finally reached the point where it must return. Typically, when the Fed turns off the spigot, it means that the coast is clear and the economy has momentum. No one would describe the current economy in such a manner, except maybe momentum to the downside. So, the Fed is rolling the dice that they have guessed the inflection point, perhaps based on that positive surprise in the last jobs report.
The market reacted the way the market is supposed to-at least on paper.
However, from here on out, there has to be good and even great news to justify the Fed implied move. The good news is that earnings season is almost over, so corporate America can’t sabotage the notion that maybe the real recovery has finally arrived. Of course, this is years after the National Bureau of Economic Research (NBER) timestamps the recession’s official end. (Fifteen years ago, I wrote that the NBER has probably become too political with its assumptions when recessions end in order to help the White House, regardless of the party in power.)
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If it turns out that the Fed is going to hike rates in December, they will have to buy at least one arrow in its quiver to use reluctantly in an election year. Or to prove to Wall Street that it’s an independent organization that can’t be pushed around (after dropping a trillion from a helicopter on the canyon of lower Manhattan); it will be a grand mistake. Remember, I think there should be no Fed, but there is; they have made a huge mess of all that power and the lack of accountability.
So, it looks like we have liftoff of rates and consequently, the liftoff of the stock market- for now.
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